Forex
Dollar eases after Fed-spurred rise; yen stronger ahead of BOJ
© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The U.S. dollar eased against a basket of currencies on Thursday, but remained near a six-month high, a day after the Federal Reserve signaled U.S. monetary policy will remain restrictive for longer.
The Japanese yen strengthened against the greenback before Friday’s Bank of Japan policy announcement, while the pound and the Swiss franc slipped after the British and Swiss central banks kept rates unchanged.
The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it signaled that its officials increasingly believe hawkish policy can succeed in lowering inflation without wrecking the economy or leading to large job losses.
Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.
“Dollar bulls absolutely got what they wanted yesterday,” Helen Given, an FX trader at Monex USA.
“Though Powell didn’t go as far as to say he expects a soft landing, it’s pretty clear between the dot plot and the Fed’s updated growth forecasts the central bank has convinced markets that is where the U.S. economy may be headed,” Given said.
“Of course, this contrasts fairly directly with guidance from the ECB and BoE, facing much more dire economic situations,” she said.
The , which measures the currency against a basket of rivals, was 0.10% lower at 105.33, after rising as high as 105.74, its strongest since March.
The yen was up 0.58% at 147.46 per dollar. With the yen still near a 10-month low against the greenback attention remains fixed on the possibility of the Japanese government intervening in foreign exchange markets to prop up the currency.
Japan will not rule out any options in addressing excess volatility in currency markets, the government’s top spokesperson said on Thursday, issuing a fresh warning against the yen’s decline towards the psychologically important 150-mark per dollar.
“Traders are repositioning before both the meeting tomorrow and CPI releases,” Monex’s Given said.
The BOJ will end its negative interest rate policy next year, the majority of economists said in a Reuters poll, as the market has begun to envisage the demise of its ultra-easy monetary settings.
“While we are unlikely to get a rate hike tonight we may just hear some comments that imply one is to come,” Brad Bechtel, global head of FX at Jefferies, said in a note.
The pound fell to its lowest since March after the Bank of England held interest rates steady on Thursday, following a cooler-than-expected inflation report the previous day.
Thursday marked the first time since December 2021 that the BoE did not raise rates at its monetary policy meeting, a halt to a run of 14 consecutive rate hikes.
The pound was 0.41% lower at $1.22935.
Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.
Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.
The euro was up 0.18% against the Swedish crown and about flat against the Norwegian crown following the respective decisions.
In cryptocurrencies, bitcoin was down about 2.0% on the day at $26,593.
HSBC Global Research has adjusted its position on the EUR-AUD currency pair, setting a lower target and stop-loss levels for its sell trade idea.
On the other hand, the firm revised its target down to 1.5690 from its initial position opened on September 20 at 1.6400. The stop-loss was also tightened to 1.6150.
The decision follows a series of negative data impulses from the Eurozone, which have persisted since the trade idea was initiated. Market expectations currently factor in a 25 basis point rate cut by the European Central Bank (ECB) in October.
However, further dovish signals in line with ECB President Lagarde’s comments on September 30 might trigger additional market adjustments. Speculations are brewing that cuts could reach 50 basis points if the current trend continues.
The Eurozone’s fiscal concerns are adding pressure to the euro, as evidenced by the sustained wide spread between the 10-year OAT (French government bonds) and German Bund yields. These factors contribute to the bearish outlook for the euro against the Australian dollar.
In contrast, the Reserve Bank of Australia (RBA) is expected to maintain its current policy stance while other central banks are easing theirs.
HSBC economists also anticipate additional policy stimulus from China, which is likely to benefit the Australian dollar. With the terms of trade shifting in favor of the AUD, HSBC’s analysis suggests that the currency will perform better than the euro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The price of soared and equity markets suffered weakness in response to the Iranian missile attacks on Israel, but the US dollar gains were more muted, noted UBS, suggesting a market that is not especially over-positioned in short dollar trades.
At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.020, after gaining about 0.5% in the previous session.
Tuesday’s soft September data seemingly took precedence over the upside surprise in August data, with 2yr US Treasury yields falling after their release.
“This was in line with our longstanding view that the market will asymmetrically weight weak US data more strongly than resilient numbers by ascribing more forward looking powers to the former,” analysts at UBS said, in a note dated Oct. 2. “The weakness in the prices paid and employment components in particular are very supportive of Fed rate cuts.”
The soft data were timely for USD bears, given that Monday’s comments by Fed chair Jerome Powell suggesting that rate cuts would go back to 25bp increments from November had allowed a modest USD pullback after sharp losses seen since mid-August, UBS said.
“With Fed officials like Bostic making it clear that further 50bp rate cuts are possible if the jobs market shows signs of real weakness, even before the ISM data it was unlikely that Powell’s comments this week could have a durable impact,” UBS added.
As such, the focus now shifts very clearly onto the September employment data due on Friday.
UBS economists are looking for headline to bounce back to 180k, above market expectations of 150k, but with the staying at 4.2% – outcomes that argue for a 25bp rate cut at the 7 Nov FOMC rather than another 50bp cut.
“From our perspective, with spot close enough already to many of our year-end calls, it gets harder to chase general USD weakness at these levels without a firm view that Friday’s jobs numbers will be weak (eg payrolls under 100k without upward revisions to previous months or an unemployment rate of 4.4% or higher),” UBS added.
By Harry Robertson and Tom Westbrook
LONDON/SYDNEY (Reuters) -The dollar held on to its biggest gains in a week on Wednesday after an Iranian missile attack on Israel drove the buying of safe haven assets as investors fretted about the widening of conflict in the Middle East.
It also jumped against the yen as Japanese officials, including new Prime Minister Shigeru Ishiba, talked down the chances of another Bank of Japan rate hike.
The euro was little changed against the dollar at $1.1069, following its largest drop in nearly four months on Tuesday at 0.6%.
The , which tracks the currency against a basket of peers, was also steady at 101.32 after rising 0.5% on Tuesday.
Iran said on Wednesday its missile attack on Israel, its biggest military assault on the Jewish state, was over, barring further provocation, while Israel and the United States said they would retaliate against Tehran.
Israel said Iran fired more than 180 ballistic missiles and Iran’s Revolutionary Guard Corps said the attack was retaliation for Israeli killings of militant leaders and aggression in Lebanon against the Iran-backed armed movement Hezbollah.
The markets’ response to the Middle East tensions thus far has centred on oil prices.
“The oil price does appear to be where the market is taking its steer from (but) even now () is still at $75 a barrel, and that’s far lower than what it was before the summer,” Jane Foley, head of FX strategy at Rabobank, said.
“It is still obviously a primary source of concern. And the market will certainly be keeping one eye on that and one eye on the Fed and the U.S. economy as well.”
In Japan, the dollar was last up 0.77% against the yen at 144.71 yen per dollar.
Bank of Japan Governor Kazuo Ueda avoided repeating the central bank’s pledge to keep raising rates in a speech and focused on the risks facing the economy.
After a meeting with Ueda, new PM Ishiba said Japan is not in an environment for an additional interest rate hike, causing the yen to fall further.
Elsewhere, the safe haven Swiss franc fell around 0.2% to 0.8435 per dollar, after it reversed its morning losses to rise slightly on Tuesday.
Sterling was little changed at $1.3281 after dropping 0.67% the previous day.
The euro’s fall on Tuesday was also driven by increased bets that the European Central Bank will cut interest rates in October, after data showed euro zone inflation fell more than expected to 1.8% in September.
The dollar’s rise was helped by a stronger-than-expected reading on U.S. job openings.
The focus turns to U.S. private payrolls data due later on Wednesday, with traders also monitoring a dispute at U.S. ports. The most important data point of the week is the U.S. employment report for September on Friday.
East and Gulf Coast dockworkers began their first large-scale strike in nearly 50 years on Tuesday, halting the flow of about half the country’s ocean shipping.
Vice Presidential candidates J.D. Vance and Tim Walz squared off in a nationally televised debate on Tuesday, which was largely civil and was met with muted market response.
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